Refining game theory



Game theory seeks to assess which behavior of the agents involved in a coalition or a conflict will produce the best results for some or all of these agents. In economics, one of the central questions is how to share the surplus generated by the cooperation of a number of agents.

American mathematician and economist Lloyd Shapley worked a great deal on this issue. He developed a solution known as the "Shapley value", which allows a fair distribution of the profits of a coalition.

A team of researchers from the Center for Interuniversity Research in Quantitative Economics, led by Effrosyni Diamantoudi, research professor of economics at Concordia University, suggested that the Shapley value could not be applied to situations where the results of a coalition also depend on agents outside the coalition. For example, in international trade, the success of a trade union, including the improvement of employee working conditions, depends in part on the formation of other trade unions in other countries.

Another limitation of the Shapley value and the resulting theories is that it applies to a coalition with only one issue at stake. However, in economics, it often happens that members of a coalition cooperate on multiple issues. For example, when countries simultaneously negotiate both a trade agreement like the North American Free Trade Agreement and an environmental agreement such as the Kyoto Protocol, it is clear that the two issues are linked. For example, the higher production levels associated with increased trade could drive up CO2 emissions, thus complicating the task of countries seeking to enter into an environmental agreement.

The researchers developed a model to account for factors outside a coalition including the effect of cooperation on multiple issues. This model allows a better evaluation of the potential gain of a coalition, making it possible to determine what each member can expect to receive for its contribution to the coalition.

Team

Centre interuniversitaire de recherche en économie quantitative

Director

Effrosyni Diamantoudi, Université Concordia

Regular members

  • Takashi Kunimoto, Université Concordia
  • Dipjyoti Majumdar, Université McGill
  • Szilvia Papai, Université Concordia
  • Licun Xue, Université McGill